Smith; Secretary, Department of Social Services and (Social services second review)
[2024] AATA 2358
•10 July 2024
Smith; Secretary, Department of Social Services and (Social services second review) [2024] AATA 2358 (10 July 2024)
Division:GENERAL DIVISION
File Number(s): 2023/6980
Re:Secretary, Department of Social Services
APPLICANT
AndShane Smith
RESPONDENT
DECISION
Tribunal:Emeritus Professor P A Fairall, Senior Member
Date:10 July 2024
Place:Sydney
The Tribunal sets aside the decision of the AAT1 made on 10 August 2023 relating to the Respondent's family tax benefit (FTB) debt of $13,469.23 for the 2018-2019 financial year and in substitution, decides that the whole of this amount is recoverable from the Respondent pursuant to section 71A of the A New Tax System (Family Assistance) (Administration) Act 1999 (Cth).
The Tribunal affirms the decision of the AAT1 made on 10 August 2023 relating to the debts of $6,317.16 for the 2019/2020 financial year, and $3,376.31 for the 2020/2021 financial year.
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Emeritus Professor P A Fairall, Senior Member
CATCHWORDS
SOCIAL SECURITY – family tax benefit – whether debt raised was due to a sole administrative error – whether special circumstances to waive extended to coronavirus pandemic – decision set aside and substituted – decision affirmed
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth)
A New Tax System (Family Assistance) Act 1999 (Cth)
CASES
Beadle and Director-General of Social Security (1984) 6 ALD 1
Charman and Devall (Child support) [2024] AATA 2015
Collins and Secretary, Department of Social Services [2022] AATA 3805
Delbake Pty Ltd and Commissioner of Taxation [2024] AATA 449
Dewan and Secretary, Department of Social Services (Social services second review) [2024] AATA 777
Fischer v Secretary, Department of Families, Housing, Community Services & Indigenous Affairs [2010] FCA 441
Hng; Secretary, Department of Education (Social services second review) [2024] AATA 36
Love and Australian Securities and Investments Commission [2024] AATA 1095
Mousawi and Secretary, Department of Social Services [2021] AATA 850
Sobhee and Secretary, Department of Social Services (Social services second review) [2024] AATA 24YPRS and Child Support Registrar (Child support second review) [2024] AATA 195
SECONDARY MATERIALS
Second Reading Speech, A New Tax System (Family Assistance) (Administration) Bill 1999 (Cth) 6417
REASONS FOR DECISION
Emeritus Professor P A Fairall, Senior Member
INTRODUCTION
The decision under review is a decision of the Administrative Appeals Tribunal (Social Services & Child Support Division) (AAT1), made on 10 August 2023. The AAT1:
·set aside the decision made by an Authorised Review Officer (ARO) within Services Australia (the Agency) on 12 June 2021, and in substitution, decided that the whole of the Respondent's family tax benefit (FTB) debt of $13,469.23 for the 2018-2019 financial year must be waived pursuant to section 97 of the A New Tax System (Family Assistance) (Administration) Act 1999 (Cth) (Administration Act).
·affirmed the decisions made on 9 June 2021 to raise a FTB debt of $6,317.16 for the 2019-2020 financial year, and 4 February 2022 to raise a FTB debt of $3,376.31 for the 2020-2021 financial year.
BACKGROUND
The family tax benefit (FTB) system is designed to provide support for families with children.[1] Like most welfare payments it is subject to an income means test. Payments are based on an estimate of future earnings made by the benefit recipient. A person may therefore be underpaid or overpaid, depending on the accuracy of their forecast. In either case an adjustment is made in subsequent years. The Second Reading Speech for the relevant legislation describes the process as follows:
Families who choose to receive fortnightly payments will estimate their income for the current financial year. Their estimated income will be compared with their actual income at the end of the year. Families who have overestimated their income during the year and have been underpaid will receive a `top-up' payment at the end of the year. On the other hand, families who have underestimated their income and have been overpaid, will be required to pay back the amount they were overpaid during the year.[2]
[1]A New Tax System (Family Assistance) (Administration) Act 1999 (Cth) (Administration Act).
[2] Second Reading Speech, A New Tax System (Family Assistance) (Administration) Bill 1999 (Cth) 6417, 6418.
Mr Smith (the Respondent) was in receipt of family tax benefit over three consecutive financial years 2018/2019, 2019/2020 and 2020/2021. In each of those years he underestimated his taxable income, according to his corresponding tax returns. This resulted in the following debts:
Debt period
Total debt
2018/2019
$13,469.23
2019/2020
$6,317.16
2020/2021
$3,376.31
The Tribunal (AAT1) set aside the $13,469.23 debt and affirmed the other debts.
The AAT1 found that the Respondent had not provided false or misleading information to the Agency, and that payments were received in good faith. On the other hand, the time taken to raise the debts was protracted, and amounted to administrative error by the Agency. The debt recovery process had been delayed and the delay was ‘inordinate’. The Respondent had not contributed to the delay.
Therefore, pursuant to subsection 97(3) of the Administration Act, 100% of each debt was attributable to the sole administrative error of the Agency. This was so despite the Respondent’s role in providing an underestimate. The $13,469.23 debt was raised after the end of the following financial year, and this debt could not be recovered because of subsection 97(3). The debts of $6,317.16 and $3,376.31 could be recovered, because they were raised before the end of the financial year following the year the payments were received.[3]
[3] That is, the year following the year in which the FTB payments were made.
The Secretary (the Applicant) applied for review of this decision.
The matter was heard on 18 June 2024. The Respondent did not contest the AAT1 finding relating to the two smaller debts, which as I say, are now substantially repaid. He did however contest the Agency’s right to recover the main debt of $13,469.23.
The Respondent gave evidence to the Tribunal. His evidence may be summarised as follows. He had not set out to mislead the Agency by providing an underestimate of earnings. His income was derived from a recently established one-man business. It was inherently difficult to predict income at the early stage of such an enterprise. The significant discrepancy between his estimates and actual earnings was not indicative of deceit but a reflection of the nature of the business. He was upset that his word was doubted given his good track record of interactions with the Agency.
His attention was drawn to various letters sent to him by the Agency both before and after the debt recovery pause, which ended in February 2021. A letter dated 16 May 2019 outlines in meticulous detail the estimates and reconciliation process.[4] He said he did not see this letter. A debt notification letter dated 16 June 2021 was sent to the Respondent’s address in New South Wales.[5] A follow up letter dated 31 August 2021 was sent to the same address.[6] He said that he only became aware in February 2023 of the debt relating to 2018-2019. He was emphatic that he had not received any debt recovery letters until 2023. He suggested that they were fabricated by the Agency after the fact.
[4] T13, 300
[5] T4, 145.
[6] T13, 322.
A significant aspect of this case is the disruption caused by the coronavirus pandemic. One consequence was the introduction of a debt pause by Centrelink. As explained by the Minister in a media release dated 3 April 2020.
Pausing debt activity during the coronavirus pandemic
The Australian government is implementing a pause on debt raising and recovery activity through Services Australia to help ease pressure on people’s budgets during the coronavirus pandemic.
The decision allows Australians to focus on their personal situation during these difficult times and supports the Government’s priority to get assistance to people as quickly as possible.
During disaster events, such as the recent bushfires, debt raising and recovery activities are routinely suspended within the affected areas. The coronavirus pandemic falls into this category, however its impact is nationwide.
Pausing certain debt activity also enables the redeployment of staff to assist in areas of critical need like claims processing for those Australians impacted by the pandemic.
Work relating to fraud and serious non-compliance will continue in order to maintain the integrity of the welfare system.
The temporary pause will be for an initial period of six months. [7]
[7] ASFIC, Annexure B.
A subsequent media release dated 8 January 2021 reminded people that debt recovery activity would recommence in February 2021, following the end of the nationwide debt pause in response to coronavirus.[8]
[8] ASFIC, Annexure C.
The Respondent stated that he was aware of the debt pause put in place by the Australian Government but considered it of no relevance because he did not owe the Commonwealth any money.
On 12 May 2020, the Respondent lodged his tax return for the 2018-2019 financial year with the Australian Taxation Office (ATO). The Agency received information regarding his adjusted taxable income from the ATO on 13 May 2020, some six weeks after the media release on 3 April 2020 announcing a 6 month freeze on debt recovery. Debt recovery action recommenced in February 2021 and in June 2021 a debt notification letter dated 16 June 2021 was sent to the Respondent’s address in New South Wales.[9] The letter states:
[9] T4, 145.
You were paid Family Tax Benefit during the 2018-19 financial year based on your estimated family income.
We have now checked your entitlement using your actual family income.
Your family income for the 2018-19 financial year was $105,416.00. Based on this income and your family circumstances during that year, you received more Family Tax Benefit than you were entitled to.
Details of your assessment
What you were paid
$17,706.88
What you are entitled to
$4,237.65
Excess amount
$13,469.23
Money you owe
$13,469.23
As noted above, the Respondent said that he did not receive this letter, or the follow up letter dated 31 August 2021.[10]
[10] T13, 322.
Waiver
An overpayment arising from an underestimate of earnings is recoverable as a debt pursuant to section 71A of the Administration Act.
The power to waive a debt that would otherwise be recoverable is provided for in section 96 of the Administration Act, which provides that the Secretary may waive the Commonwealth's right to recover the whole or a part of a debt from a debtor only in the circumstances described in section 97, 98, 99, 100, 101 or 102.
In the absence of circumstances referred to explicitly in section 96 of the Administration Act, the Secretary is entitled to recover these debts.
As noted above, the AAT1 applied section 97 relating to sole administrative error. The AAT1 reasoned as follows:
7. Where an overpayment of FTB is due to an administrative error, the law provides a time limit for recovery of the overpayment. Section 97 provides that debts arising from overpayments of FTB caused by administrative error must be waived where three conditions are met as follows:
·The overpayments must be solely attributable to an administrative error of the Commonwealth.
·The overpayments must be received in good faith.
·Either the debt was raised after the end of the financial year following the financial year in respect of which the overpayment was made; or else recovery of the debt would cause severe financial hardship.
8. As to the first condition, the authorised review officer appears to have considered that delay in processing due to the reprioritising of functions in response to the coronavirus pandemic is not administrative error. This Tribunal disagrees. It is clear that the overpayments which gave rise to the debts were solely due to the Agency’s delay in undertaking the reconciliation process mandated by law. In this regard, the test whether an overpayment is solely attributable to error is a test of causation, and causation is a legal concept. According to the legal rule, whilst it is true that the initial cause of the overpayment in each case was an inaccurate estimate of income on Mr Smith’s part, once he had lodged his tax returns within the time stipulated, the low estimate ceased to be the reason for the overpayment, and so ceased to have any causative effect in law. After his report of his (and his partner’s) correct taxable income, the only reason that there existed an overpayment became the failure of the Agency to perform the mandated reconciliation process. In law, therefore, that failure became the only effective, and thus the only legal, cause; so, the overpayment became solely attributable to the administrative failure of the Agency to perform its statutory task. The Agency may well have had its own reasons for choosing not to prioritise the reconciliation process, but that is irrelevant to the question of attribution, because the statutory test here is one of causation not of fault.
9. Is administrative delay error? Naturally, as in any large bureaucracy, there will always be a degree of delay in the Agency’s processing of reported information. Reasonable delay necessary to handle and process information as it comes to hand is understandable and implicitly authorised, but after reasonable delay comes inordinate delay, which is not a necessary or acceptable part of bureaucratic process. Inordinate delay represents, not administrative process, but administrative failure. It is equivalent in legal character to neglect or dereliction. Worse, in one sense, is delay brought on by the rearranging of bureaucratic priorities, because it proceeds from a deliberate choice not to perform the obligations mandated by the statute in the time required by statute; and the choice is no less deliberate for being occasioned by a pandemic. In the Tribunal’s opinion, it represents inordinate delay and, thus, error.
10. In embodying, in section 97, a time limit for the correction of bureaucratic error (where no one else is at fault), the legislature has implicitly recorded what it regards as reasonable delay in the correction of administrative error. If this limit is beyond the capacity of the bureaucracy, the remedy lies in persuading Parliament to amend the time limit, not in the unilateral abandonment or postponement of statutory duties imposed by the Parliament.
There is an obvious reason for time limits of this kind, which is directly pertinent to the facts of this case. They are there to avoid the accumulation of historic debts over a period of years in order to protect citizens from being suddenly burdened with large liabilities which they cannot afford; which is exactly what has occurred in this case. The Agency has no lawful right to dispense with that legislative protection and the demands of administrative convenience do not create one.
11. The Tribunal finds that the overpayments of FTB in all financial years are solely attributable to the administrative error of the Agency, in failing to perform the reconciliation process in a timely manner. The first condition is therefore met.
With great respect, I do not agree with the analysis. In the first case, there is no legally enforceable duty on the Agency to undertake a reconciliation within a particular period. As noted by the Secretary:
Section 105A of the … Administration Act mandates that the FTB reconciliation process occurs, however there is no provision which imposes a timeframe for it to take place…[11].
[11] Secretary's Supplementary Submissions, 2 July 2024, para 8.
There is a legal consequence of failing to undertake that task within the period stipulated in subsection 97(3), namely, that if certain other conditions are satisfied, a debt arising from an overpayment is not recoverable by the Commonwealth. A legal consequence flowing from an omission does not of itself impose a corresponding duty to perform.
Neither the pause, nor the result of the pause, should be characterised as administrative error. There is a qualitative difference between delay caused by factors such as misplaced documents, misleading advice, or calculation errors, and a deliberate and lawful government policy to pause debt recovery for beneficial purposes during the exigencies of a pandemic.
Whether the pause was necessary to enable the Agency to redirect resources to specific areas that had come under strain because of the pandemic, or simply to avoid inflicting additional stress on the stressed community of Centrelink clientele, is not, I think, material. It was a practical and beneficial policy aimed to assist the community during a time of crisis. Any ‘delay’ resulting from the raising of a debt after the pause had been ended cannot reasonably be described as an administrative error.
Nor can the time between the end of the pause (February 2021, as advised by media release on 8 January 2021)[12] and the issuing of a debt notification letter (16 June 2021) be regarded as excessive. The dates are important. As previously noted, the Respondent lodged his tax return for the 2018-2019 financial year on 12 May 2020. The Agency received information regarding his adjusted taxable income from the ATO on 13 May 2020, some six weeks after the media release on 3 April 2020 announcing a six month freeze on debt recovery. Debt recovery action recommenced in February 2021 and in June 2021 a debt notification letter dated 16 June 2021 was sent to his address in New South Wales.[13] Any ‘delay’ in sending the debt recovery letter (which the Respondent claimed not to have seen) cannot be regarded as ‘inordinate’, especially in light of the workload within the Agency at the time.
[12] ASFIC, Annexure C.
[13] T4, 145.
A second more important reason is that the delay cannot in my view be regarded as the ‘legal cause’ of the debt. I respectfully demur from the AAT1’s finding on this point.
Section 71A of the Administration Act provides:[14]
[14] T3, 23.
Debts arising in respect of family tax benefit advances
No entitlement to advance
(1) If:
(a) a family tax benefit advance has been paid to an individual; and
(b) the individual was not entitled to the advance;
the amount so paid is a debt due to the Commonwealth by the individual.
Overpayment
(2) If:
(a) an amount (the received amount) of family tax benefit advance has been paid to an individual; and
(b) the received amount is greater than the amount (the correct amount) of family tax benefit advance that should have been paid to the individual under the family assistance law;
the difference between the received amount and the correct amount is a debt due to the Commonwealth by the individual.
There is no recoverable FTB debt until an overpayment is identified by comparing what was received with what should have been paid. A debt may come into existence when that process is completed based on an overpayment. This does not mean that the arithmetical exercise or the timing of that exercise causes the debt.
The numerical difference between the received amount and the correct amount constitutes a recoverable amount under section 71A, subject to subsection 97(3). Any delay in calculating the difference cannot constitute a cause of the debt. As correctly noted by the Secretary:
Further, any 'delay' … in raising the FTB debts did not contribute in any way to the existence or the quantum of those debts which arise solely due to the difference between the estimated and actual adjusted taxable income of the respondent for the financial years in question.[15]
[15] Secretary's Supplementary Submissions, 2 July 2024, para 8.
I am satisfied that there is no evidence before the Tribunal capable of supporting a finding that the debt was caused by sole administrative error on the part of the Commonwealth. I therefore consider that section 97 has no application in the present circumstances.
Special circumstances: section 101
Section 101 provides for waiver in special circumstances.
The Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:
(a) the debt did not result wholly or partly from the debtor or another person knowingly:
(i) making a false statement or a false representation; or
(ii) failing or omitting to comply with a provision of the family assistance law; and
(b) there are special circumstances (other than financial hardship alone) that make it desirable to waive; and
(c) it is more appropriate to waive than to write off the debt or part of the debt.
I accept that the Respondent’s estimate of income in each of the three years was truthful. He said that in 2018 his income was derived from a one-man business dealing with fire safety that was in an early stage of development, and it was inherently difficult to predict income accurately in the early years. This is not an unreasonable explanation for the large underestimate in 2018-2019.
The critical question under section 101 is whether there are special circumstances (other than financial hardship alone) that make it desirable to waive the debt, and whether it is more appropriate to waive than write off the debt.
The concept of ‘special circumstances’ is not defined in the legislation. In Beadle and Director-General of Social Security (1984) 6 ALD 1 at [12], the Tribunal stated:
An expression such as "special circumstances" is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special.
No doubt a pandemic such as the coronavirus pandemic may be thought to have ‘a particular quality of unusualness that permits them to be described as special’.
The Secretary pointed to federal court authority to the effect that circumstances cannot be ‘special’ in relation to a person if those circumstances relate to everyone. Conversely, a circumstance may be special if it relates to a class of individuals defined by some common characteristic.[16]
[16] Fischer v Secretary, Department of Families, Housing, Community Services & Indigenous Affairs [2010] FCA 441.
The Tribunal has previously considered whether disruptions caused by COVID-19 constituted special circumstances. In Mousawi and Secretary, Department of Social Services [2021] AATA 850 at [95], the Tribunal stated:
I do not conclude that Mrs Mousawi’s comments about difficulties placed on her family finances by the COVID-19 pandemic were other than general in nature. Without saying they are not genuine statements, these are difficulties that have affected many people who are in receipt of social security assistance (and indeed many who are not) and in the absence of specific submissions that there was something special or, ‘out of the ordinary’, which might place Mrs Mousawi in a special circumstance (see the remarks of Kiefel J (as the Chief Justice of Australia then was, of the Federal Court) in Groth v Secretary, Department of Social Security [1995] FCA 1708) that might enliven the discretionary power to waive some or all of the debt, these provisions are not relevant.
In Collins and Secretary, Department of Social Services [2022] AATA 3805 at [36], the Tribunal stated:
To my mind these factors do not support the Applicant’s argument that the disruptions caused by COVID-19 constitute special circumstances. It is also the case that unless there is something ‘out of the ordinary’ about how the Applicant had been affected, COVID-19 in and of itself cannot be a sufficient ground to claim that special circumstances apply (Mousawi). Consequentially, whilst I accept that the pandemic and associated ‘lockdowns’ contributed to disruption of ‘workflow timelines’, based on the evidence I do not accept that they support a finding that special circumstances existed.
Having considered the various authorities cited by the Respondent, as well as some additional Tribunal decisions,[17] I am satisfied that neither the pandemic, nor the debt pause introduced by the Government in response to the pandemic, can justify waiving the debt under section 101.
[17] Charman and Devall (Child support) [2024] AATA 2015 (departure determination, whether justified by special circumstances due pandemic); Dewan and Secretary, Department of Social Services (Social services second review) [2024] AATA 777 (increase in income due to pandemic); Hng; Secretary, Department of Education (Social services second review) [2024] AATA 36 (difficulty filing tax return in time due to pandemic); Love and Australian Securities and Investments Commission [2024] AATA 1095 (where special circumstances found – COVID19 affected business); YPRS and Child Support Registrar (Child support second review) [2024] AATA 195 (pandemic tendered as reason for late application)
CONCLUSION
The Respondent stated that he was aware of the debt pause media releases but thought they did not apply to him because he did not owe anything to Centrelink. However, he also told the Tribunal that he understood the process of reconciling estimated with actual earnings, and that this could result in an under or overpayment. Therefore, it was unreasonable for him to conclude that the media release could have no possible application to him.
It is difficult to accept that the Respondent did not see the various letters sent to him by the Agency prior to 2023. As noted above, he said that he saw these letters for the first time in 2023 and considered that they were fabricated. There is simply no basis for attributing fraudulent behaviour to Centrelink officers and I reject this allegation outright. Indeed, given the evident care with which the Respondent attended to his affairs, and despite the exigencies arising from the pandemic, and the stress of running a one-man business, I am not persuaded that he became aware of this debt for the first time in February 2023. Indeed, I am satisfied on the balance of probabilities that the Respondent became aware of the significant FTB debt relating to 2018/2019 as early as June 2021. However, I do not believe that he gave false evidence. it may be that it has slipped from his memory.
Moreover, the Respondent repeatedly stated that he was an honourable man and had no intent to claim anything to which he was not entitled. There is nothing in the history of his dealings with the Agency which suggests otherwise. However, there is no doubt that over three years he received more FTB than he was entitled to receive. He has not adduced any evidence of incapacity to repay the debt, which can of course be redeemed by a manageable repayment arrangement. As noted in the Second Reading Speech referred to above:
The new administrative arrangements for recovering overpayments of family tax benefit, will make it much easier for families to repay a family tax benefit debt. Where it is not possible to recover overpayments of family tax benefit from the taxation system, and for overpayments of child-care benefit, these will be recovered by the Family Assistance Office under existing Centrelink arrangements.[18]
[18] Second Reading Speech, A New Tax System (Family Assistance) (Administration) Bill 1999 (Cth) 6417, 6418.
DECISION
The Tribunal sets aside the decision of the AAT1 made on 10 August 2023 relating to the Respondent's family tax benefit (FTB) debt of $13,469.23 for the 2018-2019 financial year and in substitution, decides that the whole of this amount is recoverable from the Respondent pursuant to section 71A of the A New Tax System (Family Assistance) (Administration) Act 1999 (Cth).
The Tribunal affirms the decision of the AAT1 made on 10 August 2023 relating to the debts of $6,317.16 for the 2019/2020 financial year, and $3,376.31 for the 2020/2021 financial year.
I certify that the preceding 42 (forty-two) paragraphs are a true copy of the reasons for the decision herein of Emeritus Professor P A Fairall, Senior Member
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Associate
Dated: 10 July 2024
Date(s) of hearing: 18 June 2024 Date final submissions received: 2 July 2024 Respondent: In person Solicitors for the Secretary: Mr M Gauci, Hunt and Hunt Lawyers
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